It has taken a beating lately from Paul Krugman. First, he says the Texas economy is not so special in terms of handling the recession. He makes this claim based on a comparison of the unemployment rate in Texas with that of New York. Second, he notes its budget problems are well, Texas-sized with a $25 billion budget hole. Thus, he concludes its conservative-based polices are not a model for other states to follow. Are his critiques valid?
On the fist point, Ryan Avent points out that Krugman's use of the unemployment rate is misleading because there has been a large migration to Texas where there has been hardly any to New York. Thus, a significant part of the unemployment rate in Texas during the recession comes from there being so many newcomers while that is not the case in New York.
Further evidence undermining Krugman's first critique can be seen in the following figure. It shows that the employment growth rate has been far stronger in Texas than New York in 2010. (Click on figure to enlarge.)
On the second point, Kevin D. Williamson notes that Krugman vastly overstates the Texas' budget problems. First, the real budget shortfall is probably going to be $11-$15 billion, not $25 billlion. Second, Texas actually has a $10 billion dollar rainy-day fund that could cover much of the budget hole if necessary. Thus, Texas is not going to have a budget shortfall.
Of course, New York is just one of 49 other states. Why not compare Texas to the California, the other big state? Oh yea, that has already been done and it makes Texas look special.
Now all of this does not mean Texas is the model for the rest of the states to follow. Some of its good fortune is idiosyncratic--oil prices and migration--as noted by Ryan Avent. Some of its success its policy driven too. It does mean, though, that this mix of indiosyncratic developments and policies works well for Texas. And for that I, a resident of Texas, am grateful.
David, I recommend you take a gander at Nasseem Taleb's "Fooled by Randomness". Luck plays an awful big role in things. Texas got relatively lucky this time. It was a basket case in the 1980s. And it is relative. Things are far from rosy even in the Emerald City of Austin.
ReplyDeleteDo not be deceived. America is in structural decline; once we take that on board, we begin to understand why the Fed threw the dice so desperately in 2003-2006. It was an attempt to stave off the awful reality that the game is up. If you understand that, you might not be so quick to chastise the Fed for their policies. I am not sure you do get that.
ECB,
ReplyDeleteI may be guilty of not appreciating the broader structural context that drove the Fed to do what it did in 2003-2006. That is why I am fortunate to have commentators like you who keep me honest. You have challenged and/or corrected me a number of time and I appreciate all of them. Keep 'em coming.
Since we on the topic of broad structural trends, I don't suppose you buy the optimism of this HSBC report that claims we are about to embark the mother of all global economic booms:
http://www.telegraph.co.uk/finance/economics/8239707/HSBC-sees-China-and-America-leading-global-mega-boom.html
Dr. Beckworth, that kind of wishful thinking is a pipe dream...at least for Americans, and probably for the emerging world too.
ReplyDeleteLet's see...the Fed has put nearly two trillion dollars into the banks...meanwhile, the real asset our world runs on,oil,is rapidly dwindling.
Fewer real assets...more money...this is a simple equation. Put that in your pipe and smoke it.